2.1 - Adjustments Flashcards
Adjustments for AGI are often referred to as what 2 other names/terms:
Above the line deductions
Deductions to arrive at AGI
How much can one deduct as educator expenses to arrive at AGI (adjustment for AGI)?
Up to $300 of qualified expenses (if MFJ and both educators - can deduct $600)
What expenses are explicitly not eligible as qualified expenses for the educator expenses deduction?
Expenses for homeschooling are not qualified expenses
What are the three types of retirement accounts
Deductible traditional IRA
Roth IRA
Nondeductible tradition IRA
For single taxpayers under the age of 50, the annual maximum contribution to IRAs is limited to the lesser of? What about those single but over the age of 50?
$6,000 or Earned income
$7,000 or earned income
For married taxpayers under the age of 50, the annual maximum contribution to IRAs is limited to the lesser of? What about those married but over the age of 50?
$12,000 or earned income of married couple combined
$14,000 or earned income of married couple combined
What is explicitly excluded from earned income?
Interest and dividends
Annuity income
Pensions
Alimony executed after 2018
When is the adjustment for a deductible traditional IRA allowed?
The adjustment is allowed for a year if the contribution is made by the due date of the tax return (4/15)
How are earnings and distributions on deductible traditional IRAs treated?
Earnings - accumulate tax free until withdrawn
Distributions - taxable as ordinary income
Minimum distributions are required to be taken by April 1 the year following the year the taxpayer turns 72 years old
There is no deduction for traditional IRAs if what?
The taxpayer participates in a retirement plan and is rich (over 78k for singe or over 130k for MFJ)
Can the traditional IRA be deducted for married individuals if spouse 1 has income and spouse 2 has no earned income?
Yes
A single taxpayer is 40 yrs old and an active participant in their employer’s retirement plan. Their 2022 AGI is $70,000. Calculate the maximum IRA deduction.
70,000 - 68,000 = 2,000 (over phase out threshold)
2,000 / 10,000 (phase out range) = 20%
6,000 (max deduction allowed) X 20% = 1,200
6,000 - 1,200 = 4,800 total deduction
How are contributions and earnings for a Roth IRA treated?
Contributions - not deductible when made
Earnings - accumulate tax free
No deduction is allowed for Roth IRAs, so distribution of principal (contribution) is tax free.
The ability to contribute to a Roth IRA is limited by modified AGI by the following amounts:
Single: 129,000 - 144,000
MFJ: 204,000 - 214,000
MFS: 0 - 10,000
Roth IRA distributions are non-taxable if it is a qualified distribution. A distribution is a qualified distribution if:
- It is made at least 5 years after the first day of the year when the fist contribution was made
And meets one of the following: - Taxpayer is 59.5 or older
- Taxpayer is disabled
- Taxpayer is a fist time homebuyer
- Distribution is made to a beneficiary after the taxpayer’s death
When are required minimum distributions to be taken for Roth IRAs?
There is no required minimum distributions for Roth IRAs
How are earnings and distributions treated for nondeductible traditional IRAs?
Earnings: accumulate tax free
Distributions: earnings are taxed as ordinary income and principal contributions are tax free
Minimum distributions are required to be taken by April 1 of the year following the year in which the taxpayer turns 72.
What is the early distribution penalty?
If distributions from traditional (deductible and nondeductible) and Roth IRAs are taken before the taxpayer reaches 59.5 years old, they are subject to a 10% penalty plus the regular tax.
Early distributions are exempt from penalty if:
The distributions are used for:
Child
Home
Insurance
Medical
Education
What happens to the funds that are transferred from a traditional IRA to Roth IRA?
They are taxed as it it is a distribution and are NOT subject to the 10% penalty
The adjustment fr education loan interest is limited to what amount?
$2,500 per year
Who cannot claim the student loan interest expense adjustment?
A dependent of a taxpayer
Single individuals if AGI is over $85,000 and MFJ if AGI is over $175,000
Health savings accounts enable workers to do what:
Workers with high deductible health insurance plans to make pretax contributions of up to $3,650. This is increased by an additional $1,000 if 55 or older.
Distributions from an HSA that are not used to pay qualified medical expenses are:
Includable in gross income and subject to 10% penalty
What is a high deductible health insurance plan?
A plan that has at least $1,400 annual deductible for self coverage or $2,800 annual deductible for family coverage
Who is eligible for moving expense deductions?
Members of the armed forces
What portion of self-employment tax is deductible to arrive at adjusted gross income?
50%
What portion of self-employed health insurance is deductible to arrive at adjusted gross income?
All health insurance premiums are deductible
What are the 3 most common self-employed retirement plans?
Simplified employee pension (SEP) IRA
Savings incentive match plan fr employees (SIMPLE) IRA
Solo 401k
What is the max contribution to a SEP IRA?
The lesser of:
20% of self employment net income (that’s already been reduced by 50% of self employment tax)
OR
$61,000 (67,500 is 50 and older)
What is the maximum contribution for SIMPLE IRAs?
The lesser of:
100% of self-employment net income (that’s been reduced by 50% of self-employment tax)
OR
$14,000 ($17,000 if 50 and older)
What is the maximum contribution for Solo 401k?
The lesser of:
20% of self-employment net income (that’s been reduced by 50% of self-employment tax)
OR
$61,000 ($67,500 if 50 and older)
Taxpayer has self employment net income (after deduction of 50% of self employment tax) of $100,000. Calculate the taxpayer’s maximum allowable deductible contribution to their SEP IRA self-employed retirement plan.
100,000 X 20% = 20,000
20,000 < 61,000
Max contribution deduction = 20,000
How is alimony payments executed before 2018, child support, and property settlements treated for the payee and for the payor?
Alimony - income to the payee & adjustment to the payor
Child support - Nontaxable to the payee & nondeductible to the payor
Property settlements - Nontaxable to the payee & nondeductible to the payor
